CEO of Country Risk Solutions and widely published author on current affairs and risk management. New book: "Virtual Terror".

Why Corporate Values Matter, even if Not All Consumers Care

02/07/2017 10:53 am ETUpdated
Feb 08, 2018

VW has paid a deservedly high price for its emission scandal, with more than $20 billion in total fines, having suffered severe damage to its reputation, and with some of its senior management in the process of being prosecuted. Today many consumers around the world want nothing to do with VW, wondering if its brand can be trusted. However, surprisingly, that did not prevent VW from knocking Toyota from the top sales spot for cars globally in 2016. The reason is China, where comparatively few of VW's diesel cars are sold, and the appeal of foreign brands continues to grow.

This raises the question -- even though not all global consumers appear to care about corporate values and perceived trustworthiness (in the case of China, being more concerned about being perceived to be wealthy enough to own a foreign brand than the future state of the environment), why should companies still be incentivized to have a corporate conscience, take a public stance on supporting strong corporate governance, and do the right thing? There are a plethora of reasons, of course, among them being within the bounds of the law, being seen as operating in a manner consistent with internally accepted norms, and being competitive with other companies doing the same thing.

Moreover, in the face of risks that are reshaping the world's definition of normality, steadfast adherence to value systems may be the only certain thing we can hang on to in the midst of so much uncertainty. Values may be the only space in our world where absolutes are permissible. If a firm stands for safe food products, it should be a singular focus to provide safe food all the time, to all consumers in all markets. Recent polling shows that -- apart from markets with unusual purchasing characteristics such as China -- in the long run, and in the majority of cases, companies are rewarded for doing so.

In 2014 Nielsen conducted a global poll of 30,000 consumers in 60 countries to determine how passionate consumers were about sustainable practices related to purchase considerations, which consumer segments were most supportive of ecological or other socially responsible efforts, and the social issues/causes that were attracting the most concern. More than half (55 percent) of global respondents in the survey said they were willing to pay extra for products and services from companies that were committed to positive social and environmental impact--an increase from 50 percent from 2012.

The findings reveal that two-thirds of the "sustainable mainstream" population will choose products from sustainable sources over other conventional products. They will buy as many eco-friendly products as they can, and have personally changed their purchasing behavior to minimize their effect on global warming. The referenced respondents said they will be more likely to buy products repeatedly from a company if they know the company is mindful of its impact on the environment and society.

To take this a step further, making a firm's social commitment clearly visible in product packaging makes the difference between a purchase and a pass for many consumers. In fact, for more than half of global respondents in Nielsen's survey (52 percent overall, and nearly two thirds in Asia, Latin America and the Middle East), their purchasing decisions were dependent on the packaging. These respondents said they check the labeling first before buying to ensure the brand is committed to positive social and environmental impact. These are compelling numbers.

Corporate Social Responsibility (CSR) pulls its weight beyond manufacturing and consumer goods. A growing number of the largest financial institutions -- including Goldman Sachs and Union Bank of Switzerland -- now integrate environmental, social, and corporate governance (ESG) issues into their equity research. Even private equity is responding to public pressure by agreeing to voluntary codes of transparency. Companies are also increasingly finding that they must create a CSR campaign to attract and retain staff, since many employees prefer to work for socially conscious enterprises.

In response, many firms have taken it upon themselves not only to gravitate toward the CSR world, but to reach out to NGOs and governments to create codes of conduct and commit themselves to more operational transparency. While some of this can be characterized as a defensive strategy, companies realize that there can clearly be benefits for those that are successful in staying ahead of the curve. 'Doing well by doing good' has become fashionable, prompting more and more companies to want to make CSR part of their corporate DNA. If CSR is not taken seriously and done well, it can be perceived as insincere and can backfire on a company. If it is done well, however, it will in all likelihood be perceived as a virtue, and just good business.

That VW has assumed the coveted top sales position in global car sales, in spite of having the dubious distinction of being identified as the brand with recent history's most egregious and brazen violation of acceptable standards of conduct, is a testament to the current state of affairs in global business. Plenty of consumers around the world remain unaware of and/or disengaged from CSR and ESG-related issues, which remains an enduring challenge. That will change in due course. It remains incumbent upon global companies to set the standard for behavior worthy of their status and reputation. Companies are increasingly being identified and rewarded for doing the right thing - even when they don't have to.

*Daniel Wagner is Managing Director of Risk Cooperative and co-author of the book "Global Risk Agility and Decision Making".